# German recession increasingly likely, Bundesbank says
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-22
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: German Recession Looms as Inflation Soars
Meta Description: Germany faces increasing recession risks with inflation set to soar, as Russian gas cuts and high energy costs weigh heavily on output and household budgets,
URL: https://financedigest.com/german-recession-increasingly-likely-bundesbank-sayshtml

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FRANKFURT (Reuters) – A recession in Germany, the euro zone’s biggest economy, is increasingly likely and inflation will continue to accelerate and could peak at more than 10% this autumn, the Bundesbank said in a monthly report on Monday.

With its oversized industry heavily exposed to Russian gas, Germany is among the most vulnerable to any cut off in energy supplies and soaring costs are already weighing on output with more pain expected.

“Declining economic output in the winter months has become much more likely,” the central bank said. The high degree of uncertainty over gas [supplies this winter](https://www.financedigest.com/ceraweek-europe-gas-supplies-to-stay-tight-2-more-winters-equinor-ceo-says.html "CERAWEEK-Europe gas supplies to stay tight 2 more winters, Equinor CEO says") and the sharp price increases are likely to weigh heavily on households and companies.

Russia has been curtailing gas exports in response to Western sanctions over its war in Ukraine and many if not most economists now see a [German recession](https://www.financedigest.com/german-economy-expected-to-skirt-recession-economy-ministry-report.html "German economy expected to skirt recession – economy ministry report") as an inevitability.

High prices and a shortage of gas are already forcing Germany to curtail consumption, with [energy intensive sectors from metal output to fertilizer production](https://www.financedigest.com/energy-crisis-an-existential-threat-to-eu-metal-production-eurometaux.html "Energy crisis an ‘existential threat’ to EU metal production -Eurometaux") suffering heavily.

Energy costs will meanwhile keep pushing [inflation higher and a peak is unlikely before the autumn at around five times the European Central Bank’s](https://www.financedigest.com/boes-bailey-says-rate-setters-can-put-inflation-before-bank-worries.html "BoE’s Bailey says rate-setters can put inflation before bank worries") 2% target.

Overall, the [inflation rate](https://www.financedigest.com/german-inflation-rate-to-ease-over-course-of-2023-econ-minister.html "German inflation rate to ease over course of 2023 – econ minister") could reach 10% in autumn,” the Bundesbank said. The upside risk for inflation is high, in particular in the event of a complete stoppage of gas [supplies from Russia.”](https://www.financedigest.com/exclusive-kazakh-mcdonalds-shut-outlets-temporarily-after-halting-supplies-from-russia-sources.html "Exclusive-Kazakh McDonald’s shut outlets temporarily after halting supplies from Russia – sources")

This then raises the risk of rapid [wage increases](https://www.financedigest.com/greece-to-increase-minimum-wage-again-before-election.html "Greece to increase minimum wage again, before election"), especially given record low unemployment, which could perpetuate high inflation via a wage-price spiral, the Bundesbank warned.

The ECB raised interest rates from [record lows last month to fight off inflationary pressure but further hikes are almost certain as the price growth outlook](https://www.financedigest.com/recruiter-hays-boosted-by-record-net-fees-but-cautious-on-outlook.html "Recruiter Hays boosted by record net fees, but cautious on outlook") is failing to improve.

(Reporting by Balazs Koranyi; Editing by Kirsten Donovan)


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